In several ways, Bitcoin has been referred to as the Digital Gold of our time. Gold and Crude oil are both mineral resources, but Bitcoin is a digital asset. Like mineral resources, Bitcoin cannot be created; it has to be mined. Gold and Crude oil must be extracted from beneath the earth crust (rock mining), while Bitcoin can only be mined through a complex computational equation; a unique algorithm developed by Satoshi Nakamoto, its pseudonymous creator.
Bitcoin’s total supply is fixed at 21 million.
Bitcoin is programmed by a source code, in this code, it is programmed that bitcoin must have a limited and finite supply. Due to this, there will only ever be 21 million bitcoins ever mined, regardless of the demand for it and the earth’s population. Immediately the 21 million bitcoins have been mined, no new bitcoins will be mined ever again. An additional supply can only be possible, if bitcoin’s protocol is altered to allow for a larger supply. Currently, over 18.5 million bitcoins have been mined, with less than 2.5 million bitcoins left to be introduced into circulation. On the average, bitcoins are introduced to the bitcoin supply at a fixed rate of one block every ten minutes.
Bitcoin Mining Rewards
The individuals involved in bitcoin mining are known as bitcoin miners. They collate transactions and store them into blocks. Bitcoin miners are rewarded by block rewards, which comprise block subsidy and transactions fees. The block subsidy accounts for the major share in the block rewards.
Transactions fees are fees paid by the transactor. The amount of the fees can fluctuate due to how busy a blockchain network is. The major goal of the fees is to prevent users from overloading the network.
Block subsidy is a form of reward which a miner gets for solving a cryptographic hashing problem when they successfully verify a block. It entails the total number of coins allocated to a miner by the blockchain protocol. This creates an incentive for miners to add hashpower to the network. Bitcoin block subsidy is halved every 210,000 blocks made, or roughly every four years, and this process is referred to as bitcoin halving.
Halving of Bitcoin
Bitcoin Halving is a programmable event for miners, in which their reward for mining new blocks is halved. It means the block subsidy rewards given to miners for verifying a transaction is reduced by half. When bitcoin was first launched, the reward was 50 bitcoins. In 2012, it halved to 25 bitcoins. In 2016, it halved again to 12.5 bitcoins. On May 11 2020, the reward halved again to 6.25 bitcoins.
This will keep happening until the total supply of Bitcoin is completely mined. The last halving occured in May 2020, which puts miners’ rewards at 6.25 bitcoins per confirming block. The projected year that the final bitcoin is likely to be mined is not until around the year 2140.
Will Bitcoin Mining be Profitable for Miners after all Bitcoins have been mined?
Bitcoin mining is a process which involves adding transaction data into the Bitcoin’s Public Ledger in order to confirm and verify the transaction. The recorded transactions are collected into blocks and are added to the Bitcoin Blockchain.
It is very tedious and it requires a lot of resources, such as supercomputers, which is needed to protect the network from the possibility of altering past data by making all attempts in changing blocks inefficient for an intruder or hacker.
It is based on a consensus verification algorithm called the Proof of Work. Proof of Work is an algorithm that is used to confirm transactions and produce new blocks in the Bitcoin Blockchain. This involves the miners competing with each other to get rewarded.
Without the miners, the network would be attacked and dysfunctional. Whenever transactions are made by users, all network nodes receive them and verify their validity. Then, the miner nodes gather the data from the memory pool and begin assembling them into an individual block.
After the 21 million bitcoins have been mined, there will no more block subsidy rewards for the miners, since there are no more bitcoins to be generated. Miners will be rewarded solely by transaction fees as they continue to actively participate and validate new transactions.
Transactions fees are minute, compared to block subsidy rewards. However, transaction fees could potentially rise to a huge amount of money, especially as the number of transactions increase on the blockchain.
Impact on Bitcoin Miners and its Network
This might be considered a piece of good news for miners, as transaction fees will increase as the price of Bitcoin increases. Currently, there are less than 2.5 million bitcoins left to be mined. After all these have been mined, bitcoin will be scarce in the marketplaces, which would eventually lead to an increase in the price of Bitcoin.